THE NAIRA EXCHANGE RATE AND EXTERNAL TRADE BALANCE (1981-2023)

The study investigated the impact of the naira exchange rate and external trade balance (1981- 2023) using secondary data from Central Bank of Nigeria (CBN) National Bureau of Statistic and WDI. The Objectives of this study were to describe the trends of the naira exchange rate and external trade balance, determined the effect of naira exchange and external trade balance and causal relationship between the naira exchange rate and external trade balance. Unit root test was carried out with the use of Augmented Dickey Fuller to ascertain the stationary of the variables and they were found to be stationary at order 1(0) and 1(1). ARDL (Auto regressive distributed lag) bound test was used to analyze the model that there is long-run co- integration among the variables. The granger causality test was used to test for the causality among the variables in the model as well as checked the direction of causality among variables. The result shows that granger causality revealed that there is no directional relationship between exchange rate and trade balance and between inflation on trade balance. The study concluded that the here is no significant effect between these variables and trade balance. However, money supply was found to significantly influence inflation, and exchange rate changes significantly affected money supply. The study therefore recommends that government the government should make it a requirement to create a support system for domestic firms to expand output growth and improve quality. This will encourage the consumption of local products as imports become relatively expensive when the currency depreciates